Deutsche Bank Markets Research Asia India Technology Software & Services Industry Indian IT ServicesDate 7 January 2014 Forecast Change 2014 outlook – retaining positive view despite strong performance in CY13 Sector geared to macroeconomic recovery ________________________________________________________________________________________________________________Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 054/04/2013. Aniruddha Bhosale Research Analyst (+91) 22 7180 4037 [email protected]Key Changes Company Target Price RatingHCLT.BO 940.00 to 1,040.00(INR) -INFY.BO 3,200.00 to 3,660.00(INR) -TCS.BO 2,750.00 to 2,900.00(INR) -WIPR.BO 590.00 to 650.00(INR) -TEML.BO 1,890.00 to 2,200.00(INR) -Source: Deutsche Bank Top picks Tata Consultancy (TCS.BO),INR2,239.60 BuySource: Deutsche Bank Companies Featured Tata Consultancy (TCS.BO),INR2,239.60 Buy2013A 2014E 2015EP/E (x) 18.323.219.1EV/EBITDA (x) 13.616.413.7Price/book (x) 7.58.26.4Infosys Limited (INFY.BO),INR3,514.20 Hold2013A 2014E 2015EP/E (x) 15.119.416.9EV/EBITDA (x) 10.213.011.0Price/book (x) 4.24.33.6Wipro (WIPR.BO),INR558.05 Buy2013A 2014E 2015EP/E (x) 15.418.015.0EV/EBITDA (x) 11.012.99.9Price/book (x) 3.84.03.3HCL Tech (HCLT.BO),INR1,251.30 Sell2013A 2014E 2015EP/E (x) 11.216.015.4EV/EBITDA (x) 7.09.68.6Price/book (x) 3.84.53.5Tech Mahindra Ltd (TEML.BO),INR1,817.65 Buy2013A 2014E 2015EP/E (x) 9.313.011.7EV/EBITDA (x) 4.63.93.1Price/book (x) 2.93.62.8Source: Deutsche Bank Synchronised global macroeconomic recovery after a three-year gap forms the bedrock of our view that IT services spending will improve significantly in CY14. A 50% outperformance vs. the Sensex in CY13 notwithstanding, we retain our positive view on the sector with TCS as our top pick. Tech Mahindra and Wipro are the other large-cap Buy-rated stocks that we cover. While a pick-up in demand should benefit laggards such as Wipro and Infosys, we expect Infosys' operating margins to remain under pressure and hence prefer Wipro over Infosys. Lopsided revenue growth is likely to pose growth concerns for HCL Tech; we reiterate Sell. Doubling of USD revenue growth rates in FY15E for top tier Indian vendors We expect top-tier Indian IT vendors to deliver 15–21% yoy USD revenue growth in FY15E (vs. 8–13% CAGR over FY11-14E). We believe pent-up demand for change-the-business IT-services-spend will be a key growth driver. In particular, we expect strong demand for SMAC (social, mobility, analytics and cloud) solutions. In addition, a stable INR and abating concerns about the ‘draconian’ provisions of the US Immigration Bill lead us to believe that top-tier Indian vendors should be in a position to deliver 12–22% yoy earnings growth in FY15E. Our recent channel checks suggest that the market positioning of most of the top-tier Indian vendors will remain largely unchanged in CY14E vs.

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